Educate parents and young adults in practical money matters

Nailing Financial Predators

“A prize fighter in a corner is told, hit where it hurts. Silver and gold.” – U2*

Every time Tony and I have met with prospective clients who have come from traditional brokerage channels (literally, every single time) there is an uncomfortable point in the meeting where they are ashamed at the fact that they received no financial plan; no real coherent diversification strategy to minimize risks; no exit strategy as to when they can jump off the hamster wheel and enjoy the fruits of their labor; and no clear handle on what they are paying.

Instead, we watch as realization spreads across their faces – they were sold something they may not have needed, paid more than was necessary and still have no sense as to whether financially they are on track.

The look we get is always the same — like they just dropped their towel and we saw more than we should have.

I always try to ease their embarrassment, discomfort and anger – because these emotions can be quite damaging and may cause paralysis. The world seems pretty scary when being talked out of your money was so stupidly simple. Yet, sitting on the sidelines is another form of self-inflicted punishment.

For those stuck in this zone of not knowing whom to trust, I say trust yourself. Trust yourself to find credible sources of information. A good starting point is learning how human nature can make you vulnerable.

In “6 Principles That Predators Will Use Against You,” (Psychology Today, September 16, 2016) Katherine Ramsland, Ph.D., highlights six ways people are persuaded. I’ve taken these examples one step further to show how it plays out with a salesperson trying to get over on you:

Authority – Someone who seems to be an expert and who exudes confidence is more readily trusted, and even obeyed. If technical, complicated concepts are tossed around, it could easily appear that someone knows what they are talking about, when they are really reading from a sales script (I know, I used to write them. Forgive me.) Don’t assume that they are experts in anything other than getting you to buy.

Reciprocity – When someone is nice, we tend to want to do something nice back. So a “free” pizza, box of donuts, lunch or dinner can make someone open an account to do a good turn. Do not partake in a freebie and you won’t feel obligated.

Liking ­– A good salesperson knows how to be likable and goes to great lengths to identify how best to relate to you. This usually involves referring to personal notes made after meeting you, such as: likes golf, has three kids, son plays football for local high school. Then, these tidbits get woven into conversation so that it appears that he actually cares about what matters to you most. Do your best to keep conversations strictly business-like to give yourself the inside edge.

Scarcity ­– Imposing a deadline for an offer or making some opportunity seem exclusive creates irrational urgency that can get you into trouble. Recently a friend of mine asked me whether he should turn over his life savings to an annuity, but he had an hour to decide. Needless to say, I told him to run like hell. If someone is pressuring you to make a decision, they are in a rush to get their money (from you).

Social Proof ­– When there is uncertainty, we look for direction. “Helpful” sales guys always have the solution and it always benefits them. I cannot tell you how many times I have seen someone talked out of their low-cost 529 College Savings Plan that involves no commissions, in favor for an inferior product laden with fees and heavy commissions. I let it be known that NY has a great low-cost plan offered through Vanguard at NY Saves. I do this not because I earn a dime from that recommendation, but because it is the right thing to do (it’s where we have our sons’ college funds). Innocently float out a question about a respected, low-cost option, such as Vanguard or the 529 plan I just mentioned. If you are being steered elsewhere you need to question if the “advice” you are being given is truly good for you.

Commitment and Consistency ­– People like to make good on their promises, so when you agree to one small commitment it makes it that much easier to get you to agree to something more. I have seen this especially with teachers and their retirement plans. A sales guy who comes in to talk about their 403(b) retirement plan options first sells a horribly expensive annuity or over-priced mutual fund to the unsuspecting victim. Then a crappy whole life insurance policy gets sold to them, followed by infiltrating the spouse’s accounts and the kid’s college funds. Ask for all fees and terms in writing, signed and dated. If that is a problem, you’ve got a problem.

Not sure how to undo the damage? Find a fee-only fiduciary, who is also a Certified Financial PlannerTM (search for one here). Just make sure under “compensation method” you look for fee-only – which means the advisor never earns commissions or compensation for recommending certain products. This keeps the advice objective and serving your best interests.

Now that you know, and possibly recognize what may have been done to you, you only have one choice: hit them where they live – in the wallet. Pull your accounts and never be prey again.

And, if you want to earn good humanitarian points, pass it along. Not because you will earn anything from it, but because it’s the right thing to do.

Dina Isola

Since 2002, Dina Isola has worked closely with investors, hearing their concerns. Drawing on her experiences and challenges, Real$martica was born, which focuses on making personal finance issues relatable to women, children and families and educating investors to make informed decisions. A contributor to A Teachable Moment, she is a client relations specialist at Ritholtz Wealth Management. She also serves on Stony Brook Children’s Hospital Task Force.